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Direct purchases of U.S. Treasury securities by Federal Reserve banks

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  • Kenneth D. Garbade

Abstract

Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?

Suggested Citation

  • Kenneth D. Garbade, 2014. "Direct purchases of U.S. Treasury securities by Federal Reserve banks," Staff Reports 684, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:684
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    References listed on IDEAS

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    1. Garbade, Kenneth D., 2012. "Birth of a Market: The U.S. Treasury Securities Market from the Great War to the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016370, April.
    2. Richard W. Lang, 1979. "TTL note accounts and the money supply process," Review, Federal Reserve Bank of St. Louis, vol. 61(Oct), pages 3-14.
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    Cited by:

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    2. Sergio Cesaratto, 2016. "The state spends first: Logic, facts, fictions, open questions," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(1), pages 44-71, January.
    3. Ron Baiman, 2020. "Financial Bailout Spending Would Have Almost Paid for Thirty Years of Global Green New Deal Climate: Triage, Regeneration, and Mitigation," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(4), pages 650-661, December.

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    More about this item

    Keywords

    Treasury debt issuance; Federal Reserve; direct purchases;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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